Trends and directions in the hearing healthcare market
Niels Jacobsen, President & CEO, William Demant Holding Sren Nielsen, President, Oticon
Agenda
Starting point
Hearing aids
Fundamental drivers
Drop-out rates
Consequences of hearing loss
Understanding end-users
Challenges
The hearing healthcare market
Trends and directions
Channels and geography
Demographics
Prevalence
Reimbursement
2
Niels Jacobsen
Born in 1957
M.Sc. in Economics from Aarhus University
Part of the executive management in William Demant Holding since 1992
President & CEO in William Demant Holding since 1998
Board positions:
LEGO (Chairman)
KIRKBI (Vice Chairman)
Maersk Group (Vice Chairman)
ssur (Chairman)
Oticon (Chairman)
Directorships in a number of Group-owned subsidiaries
President and CEO, William Demant Holding A/S
3
The hearing healthcare
market
4
The hearing healthcare market today
Stable, but competitive environment
No new players of significance have entered the market for the past three decades
The leading players are entering into related business areas
Many good product offerings in the market
The industry must adapt to the continuously changing market conditions
Customers react more slowly to new product introductions
More glue in independent sales channels
Increased focus on price in certain government systems
Fundamentally healthy market dynamics
Stable underlying unit growth
Promising demographic development in the years to come
Significant improvements in end-user benefits in recent product generations
A fundamentally healthy market
5
Hearing solutions Strong growth opportunities in the implant market
Styles Description Growth potential Market value
BTE Preferred choice in more complex cases and in developing markets
USD 4bn (whole sale)
ITE Stabelised at the current share of total market
RITE Preferred choice in many countries best peformance/size ratio
IIC/extended wear
A niche market for cosmetically oriented users
Cochlear implants
An underpenetrated market with strong growth opportunities USD 1bn
Bone anchored systems
A market with strong growth, but limited size of total market USD 125m
OTC amplifiers Fragmented market with lack of fitting and follow-up support USD 50m
Stabile
Stabile
Good
Good
Strong
Strong
Good
6
The hearing healthcare industry Consolidation since 1994
1994 Today
Oticon - Bernafon Maico - Bosch - Gfeller/Ascom - Sonic - Neurelec Phonak - Unitron - Lori Medical - Argosy - Advanced Bionics InSound Medical Siemens - Rexton - A&M Audioservice Danavox - ReSound - 3M - Sonar Beltone - Viennatone - Philips - Interton Starkey - Microtech - Qualitone - Vivatone
Widex - Coselgi
7
Hearing-related product offerings Hearing healthcare companies
Offerings
Traditional HAs
IIC/extended wear
Cochlear implants
Bone conducting systems
Diagnostic equipment
Middle-ear implants
8
Hearing aids
9
Sren Nielsen
Born in 1970
M.Sc., Industrial Management and Product Development, Technical University of Denmark
President of Oticon A/S since 2008, employed with the Group since 1995
Worked for Bernafon AG in Bern, Switzerland, 1995-1997
Board positions:
FertiliTech
Sennheiser Communications
Directorships in a number of Group-owned subsidiaries
President, Oticon A/S
10
Global market
The market
10-11 million units sold per year
Global wholesale market of USD 4 billion per year
Six largest manufacturers hold a total market share of +90%
Main markets are still the OECD countries
2-4% yearly unit growth driven by demographic development
End-users
+10% of population in OECD countries suffer from hearing loss
35-40% of population aged +65 are hearing -impaired
Just above 20% of the hearing impaired use a hearing aid
Average age of first-time user is 69 years (USA)
Average age of all users is 72 years (USA)
Positive opportunities in an under-penetrated market
11
World market units (estimate) Unit growth in line with historical average
5.000
6.000
7.000
8.000
9.000
10.000
11.000
2006 2007 2008 2009 2010 2011 2012
12
Geographic market unit split Majority of hearing aids sold in developed markets
South America 7%
North America 29%
Africa 2%
Asia and the Pacific
21%
Europe 41%
13
Top 25 countries Share of total world market (units)
Countries with WDH subsidiaries (hearing aids)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
5%
10%
15%
20%
25%
30%
Accumulated
14
24%
45%
9%
22%
Large retail chains
Independent dispensers
Manufacturer retail
Public
Style and channel break-down (2012) Only minor changes in the channel mix
Style 2010 2012
In-The-Ear 20%
Receiver-In- The-Ear
30 %
Behind-The-Ear
50%
Channel
10-11 million hearing aids
Style
2012 2010
23%
46%
8%
23%
Source: WDH market data and estimates
15
Market channels
The independent dispenser channel is still the most significant Increasing number of outlets (low-entry barriers) Buying groups play an increasingly important role Increased level of interaction and more glue in the system
The retail chain segment is becoming global New entrants with shop-in-shop concepts (opticians etc.) All large retailers seek global opportunities
Manufacturers share of retail is increasing slightly All manufacturers are involved in retail Limited growth from a unit perspective
Public channel is slightly below market growth Structural changes have limited impact on unit sales
Increased professionalisation of the distribution channels
16
Levels of customer interaction More glue in the independent system
Independent retailers
Supply agreements
Co-op
Supply-based loans
Loans for expansion
Minority ownership
Manufacturer-owned retail
Degree of interaction
Overall goal is to ensure long-term wholesale supply
17
Fundamental drivers in the industry
18
Fundamental drivers in the industry
Penetration rate
Binaural fitting rate
Demographics
Three key drivers for market unit growth
Main factors for market development
Maturity of the market
Third-party payment
19
Growth factors in the industry World population is getting older
2 billion mature customers in 2047 Dependency ratio will force us to work longer In Japan, the 60+ group already constitutes more than 1/3 of the population
Share of total population
20
Demographic development Increasing growth in the 65+ population
Yearly growth in 65+ population
Share of global market (units)
Units sold per year (000)
Total 65+ population in 2013
2008 to 2013 2013 to 2018 2018 to 2023
Western Europe 35% 3,700 78,000,000 1.6% 1.6% 1.5%
Eastern Europe 7% 750 18,000,000 1.2% 2.6% 2.4%
North America 29% 3,100 50,000,000 2.6% 3.1% 3.2%
South America 7% 750 44,000,000 - 3.7% 3.9%
Oceania 4% 400 4,500,000 3.3% 3.4% 2.9%
Asia 17% 1,800 313,000,000 3.0% 3.8% 3.9%
Africa 2% 200 38,000,000 3.1% 3.5% 4.0%
Total 100% 10,700 545,500,000 2.6% 3.2% 3.5%
Source: U.S. Census Bureau, Population Division, 2013 and WDH estimates (units sold)
21
Most developed countries Growth in 65+ population in the most developed countries
Source and definitions: U.S. Census Bureau, Population Division, 2013
2.1% 2.1% 2.0% 1.7% 5 years CAGR
0
50
100
150
200
250
300
350
2010 2015 2020 2025 2030
Mill
ion
s
65-69 70-74 75-79 80-84 85-89 90-94 95-99 100+
22
Baby boomers
The baby boomer generation covers U.S. citizens born from 1946 to 1964
The segment consists of approx. 77 million Americans who constitute the largest population group in the US
The generations oldest members have now passed 65 years of age and thus entered the target market for the hearing aid industry
This group is: Internet-savvy
Health-conscious
Critical
and has high expectations
A significant opportunity for the industry
Focus group of the entire industry
Source: Kochkin, MarkeTrak 2007
Source: US Census Bureau
Development in population with hearing loss in the US
23
Developing countries Growth in 65+ population in the developing countries
Source and definitions: U.S. Census Bureau, Population Division, 2013
5 years CAGR
0
100
200
300
400
500
600
700
800
2010 2015 2020 2025 2030
Mill
ion
s
65-69 70-74 75-79 80-84 85-89 90-94 95-99 100+
3.4% 4.1% 3.7% 3.9%
24
Penetration in developing markets
Drivers for increased penetration
Increasing age and GDP
Next 65+ generation is wealthier
Developing markets are significantly under-penetrated
Reimbursement in place
Access to distribution
Factors limiting increased penetration
Lack of audiological tradition
A relatively young population
Elderly population with low income
Few reimbursement plans
Lack of infrastructure
Low average selling prices
Basic factors are crucial for a market to develop
25
Penetration rates Percentage of hearing-impaired population wearing hearing aids
0%
5%
10%
15%
20%
25%
30%
35%
40%
Australia USA Europe (EU) Japan China
Source: WDH market data and estimates
26
Binaural fitting rate Share of hearing aid users wearing two hearing instruments
Source: MarkeTrak and WDH market data/estimates
80%
20%
Binaural
Monaural 74%
26% Binaural
Monaural
65%
35% Binaural
Monaural
30%
70%
Binaural
Monaural
27
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Reimbursement
Reimbursement is generally positive for the development of a hearing aid market Not all reimbursement systems are
beneficial for end-users or the industry
Ongoing changes in reimbursement Most countries adapt their programmes
on a regular basis Generally not driven by austerity
measures
No universal reimbursement system or trends All countries seem to develop their own
programmes
Freedom of choice is positive for end-users and for the industry
Significant variety in reimbursement systems
Global hearing aid reimbursement (units)
Fully reimbursed
Partly reimbursed
Out of pocket
Source: WDH estimates
29
Third-party payment Lack of awareness of reimbursement
79%
17%
4%
Yes
No
Don't know
52% 41%
7%
Yes
No
Don't know
74%
24%
2%
Yes
No
Don't know
30%
9% 61%
Yes
No
Don't know
43%
31%
26% Yes
No
Don't know
Source: EuroTrak 2012
31%
22%
47%
Yes
No
Don't know
Owners: Was any part or all of your hearing aid(s) paid for by a third party? (insurance, government etc.)
Non-owners: Based on your current knowledge, would any part or all of your hearing aid(s) be paid for by a third party?
Additional industry insight
Direct links to the most recent studies:
MarkeTrak VIII (2009): http://www.betterhearing.org/pdfs/M8_hearing_loss_trends_2009.pdf
EuroTrak/JapanTrak 2012: http://www.conjoint.ch/publikationen/Hearing_Review_March_2013_Article.pdf
Comprehensive studies on hearing-related issues
MarkeTrak EuroTrak/JapanTrak
Most recent survey 2009 2012
First survey 1989 2009/2010
Markets covered USA UK, Germany, France, Norway, Switzerland, Italy and Japan
Survey base 46,843 households (14,623 people with hearing loss)
105,000 people (9,000 with hearing loss)
Main sources for further information
www.hearingreview.com www.betterhearing.org
www.anovum.com www.hear-it.org www.ehima.com
MarkeTrak and EuroTrak/JapanTrak are global comparative studies of hearing, hearing loss and hearing aids conducted on behalf of industry associations in select countries
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Industry challenges
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Industry challenges
Realising the hearing loss takes time
Getting people with an admitted hearing loss to do something about it is still the biggest problem
A small industry with limited marketing power
Attractive product offerings do not attract more end-users
Main obstacles for increased penetration continues
32
Example: Drop-out rates Germany Information and relevant advice are crucial
100%
80%
48% 42%
38% 34%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
All hearing impaired
Discussed hearing loss with doctor
Positive medical advice from doctor
(further action)
Discussed hearing loss with
audiologist
Positive advice from audiologist
Fitted with hearing aid
Drop-out:
20%
Drop-out:
40%
Drop-out:
29%
33
Understanding the end-user
Dimensions
State of mind
Decision parameter
Background
Hearing loss
Expectations
The Reluctant
Is in denial
Focus on cosmetics
Typically first-time user
Mild to moderate
Is not looking for a HA
The Acceptant
Has accepted
Balance of cosmetics and functionality
Mixed
Moderate to severe
Knows it will be a HA
The Dependent
Is dependent on
Prime focus is performance
Very experienced
Severe to profound
Comfortable with HA
34
Understanding the end-user
Dimensions
State of mind
Decision parameter
Background
Hearing loss
Expectations
The Reluctant
Is in denial
Focus on cosmetics
Typically first-time user
Mild to moderate
Is not looking for a HA
The Acceptant
Has accepted
Balance of cosmetics and functionality
Mixed
Moderate to severe
Knows it will be a HA
The Dependent
Is dependent on
Prime focus is performance
Very experienced
Severe to profound
Comfortable with HA
35
Understanding the end-user Different people require different processes
Awareness Counselling Treatment Rehabilitation
If we understand people, we can design the process and offer the right solutions
36
Conclusions
Leading players continue to consolidate into related business areas Synergies will ensure a larger R&D base for the benefit of end-users
Competitive, but stable market development More glue in the system due to closer partnerships with customers
Underlying growth drivers are fundamentally healthy Growth from the baby boomer generation and emerging markets Implant market will outgrow the market for traditional hearing aids
Generally speaking, reimbursement schemes are positive, but they can also be a limiting factor, if there is no freedom of choice
Low penetration rate of hearing aid users Lack of relevant counseling is a limiting factor Create a better understanding of the end-users needs and the
socioeconomic consequences of a hearing loss
Hearing aids are not a commodity one size does not fit all!
A healthy underlying market with growth potential
37
Q&A
38
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